Investing in a Vacation Rental Home: 6 Things to Consider

You’ve been thinking about investing in a vacation rental home. You’ll hopefully find an exciting property, pump some style into it, and rent it out to happy families to make some extra cash.

It’s a good plan, and one that has potential for long-term financial success, as long as you remember to consider these six important factors:

Know your budget when investing in a vacation rental home

This seems like a no-brainer. There are a lot of hidden costs that you may not think about when calculating your budget. Make sure you factor in:

• Utilities
• Homeowner’s association or condo fees
• Insurance and taxes
• Repairs and property management
• Routine maintenance
• Anticipated rental income (it’s best to underestimate)

If you account for these costs before you shop, you’ll have a pretty good idea of what you can afford. This makes all the difference between an investment that will earn you money and one that will drain your savings.

Location is key when investing in a vacation rental home

Remember the three L’s. Location, location, and location.

You may have found a beautiful home for an amazing price, but it’s not going to earn you any money unless people want to stay there. Location desirability is one of the most important factors determining whether your rental property will generate a steady stream of income.

• Glitzy metropolitan centers or picturesque towns with hopping tourism industries are safe bets.
• You could also consider college towns, which families and prospective students visit regularly, when investing in a vacation rental home.
• Locations near airports and corporate centers will attract a steady stream of business clients.

Think about who will rent your vacation property

Your target clientele is related to the location of your vacation property.

A small, quaint mountain village might attract couples, while groups of singles will flock to club-studded beach towns. When you have determined who is most likely to rent your property, you can focus your approach to attract the most renters.

This includes everything from furniture and paint color, to amenities and advertising, to the way you photograph your property for advertisement.

If you’re targeting business travelers, for example, you might want to include conveniences like a home office with a printer and scanner. If you’re hoping to host families, provide a large dining table and ample lounging space in the living room or family room.

Check the regulations

Not all cities allow short-term vacation rentals. Those that do may have exclusionary zones or other restrictions on such rentals. Not only is flouting these rules illegal, but you can incur hefty fines. It’s just not worth it to break these rules.

Even if the city or locality allows short-term rentals, the condo or homeowner’s association may not.

Do your homework before buying. Check with the relevant authorities in your target location for details.

Make sure you understand the tax implications

When buying any property, you need to factor property taxes into your budget. With an income property, you’ll also need to account for the tax you’ll pay on any income you generate. Make sure you are up to date on the latest tax regulations relating to short-term rentals (and tax breaks, too). Plan accordingly to avoid any unwelcome surprises come tax season.

In some locations, it will also be your responsibility to collect occupancy or sales tax from renters. Avoid headaches by thoroughly researching your responsibilities under the law before your first guests check in.

Who will manage the property?

If you live nearby, you might be considering managing the property yourself. This isn’t a small amount of work, but it is the most cost-effective option. Property management fees usually start at 8% and only go up from there. If you’re planning to use a company, don’t forget to factor that cost into your calculus before you buy.

And if you’re going to be your own manager, you’ll need to consider who will do repairs.

Maybe you’re handy in some areas, and that’s great. But you’ll still want to shop around for professionals who can lend a hand when you’re unable to accomplish something.

Even if you don’t think you’re handy, you can save money by learning to do easy jobs, such as caulking a bathtub or filling in and repainting drywall holes.

We hope you will find this guide on investing in a vacation rental home useful. We put this checklist to the test when investing in our executive property, Loudoun Escape, with excellent results.

If you’re ever in the area and want to book a stay,  get in touch. We’d love to have you as our guest.